Novartis Directors and Officers Win Dismissal of Shareholder Derivative Suit in New York Supreme Court

On August 19, 2022, the New York Supreme Court Commercial Division issued a decision dismissing a shareholder derivative action filed against current and former directors and officers of Novartis AG (“Novartis”) and several Novartis subsidiaries who, along with the Company, were represented by Cravath. Justice Margaret Chan of the Commercial Division dismissed the suit without prejudice to refile in Basel, Switzerland as required by a forum selection clause contained in Novartis’s Articles of Incorporation.

On January 21, 2021, a purported shareholder of Novartis common stock filed suit against several current and former directors and officers of Novartis and three Novartis subsidiaries, alleging that the Defendants breached their fiduciary duties to Novartis by failing to conduct adequate oversight of the Company’s operations. On July 23, 2021, Plaintiff filed an amended complaint adding an alleged holder of Novartis AG American Depositary Shares as another plaintiff.

Cravath, in conjunction with attorneys at the Swiss law firm Bär & Karrer, filed a motion to dismiss the action against all Defendants. In addition to arguing that the suit must be dismissed on the basis of the forum selection clause, Defendants argued that New York state court was an inconvenient forum under the doctrine of forum non conveniens and that principles of Swiss corporate law and New York substantive and procedural law governing shareholder derivative actions required dismissal.

In dismissing the action, the Court rejected each of the Plaintiffs’ arguments attempting to side-step the forum selection clause contained in Article 39 of Novartis’s Articles of Incorporation, which states that “[t]he place of jurisdiction for any disputes arising from or in connection with the shareholdership in the Company shall be at the registered office of the Company”—i.e., in Basel, Switzerland. Justice Chan first held that a forum selection clause referring to the “shareholdership in the Company” encompasses shareholder derivative actions, contrary to Plaintiffs’ arguments that Article 39 was limited to disputes between shareholders and the Company. The Court also held that Novartis’s forum selection clause was valid and applicable to the Plaintiffs’ action under both Swiss and New York law. Finally, Justice Chan found that (1) Article 39 was mandatory, pointing to the use of the word “shall” in the English translation of Article 39 on Novartis’s website, and (2) enforcement of Article 39 would not offend New York public policy. Because the Court dismissed on the basis of the forum selection clause, the Court declined to consider the Defendants’ remaining arguments in favor of dismissal.

The Cravath team included partners Evan R. Chesler and Lauren M. Rosenberg and associate Cristopher Ray.

The case is Cattan, et al. v. Vasella, et al., No. 650463/2021 (N.Y. Sup. Ct. 2021).